Stackelberg hub location problem

Abstract

In this paper, we consider a new competitive hub location model called Stackelberg hub location problem where a big firm competes with several medium firms to maximize its own profit. We assume that the medium firms' service sets are mutually disjoint and there is no competition among them. The big firm first locates a new hub on a plane as a leader on the condition that the other firms locate their new hubs after that. We formulate the leader's problem as a bilevel programming problem with followers' problem as lower level problems, and solve it using SQP method. Computational results show the significance of the proposed competitive hub location model.